Pretty vacant

Do you shop online? Yes? Well, it’s partly your fault then. Our high streets have been crumbling since the arrival of out of town retail parks. Now, since the online shopping frenzy became a habit, even the retail parks have empty units – but some high streets are becoming ghost towns as retailers struggle to pay rents set in good times from revenues received in bad times.

The Local Data Company’s latest Shop Vacancy report, titled ‘A Gathering Storm?’, actually shows a slow down of the increase in shop vacancy across Britain in the first half of 2010, but the regional differences are becoming more apparent than ever.

The picture across Great Britain (see table 1 and 2)

Town centre vacancy rates in the UK have risen from just over 12 per cent at the end of 2009, to 13 per cent at the end of June. The table shows the weak state of the retail markets in large northern and Midland cities, but there are only three southern centres in the table; Watford at 17, Bristol at 23 and Reading at 24. Bristol has only half the vacancy rate of the worst large centre – Blackpool – which has nearly 30 per cent vacancy.

Regional variations

There is a clear North/South divide in shop vacancy. The big centres in London and the South East are holding up well, further north vacancy rates are much higher. The survey shows the increase in vacancy rates is slowing down, which seems a comfort, until you consider those economies anchored by the public sector and realise that this could be a temporary respite.

The philosophy underpinning the new coalition administration is to shrink the State for good. For some big northern centres, this may be the perfect storm.

Liz Peace, CEO of the British Property Federation, said, “It is encouraging to see High Streets recovering in the South, but that positive glimmer doesn’t hide the fact that other retail markets are struggling and that consumer confidence is still fragile.

“This data highlights the need for government initiatives to help regional centres, such as proposals for Local Enterprise Partnerships, the £1bn Regional Growth Fund, and its National Insurance holiday for companies hiring new staff, to be implemented quickly and effectively.”

However, filling empty shops won’t be easy or quick. Banks and landlords need a proactive approach to managing property, while local authorities have a key role to play in promoting flexibility and innovation in areas suffering from a high number of vacancies.

The problem is exacerbated by the continued imposition of empty property rates, which has forced landlords to pay money in tax they could have used to make their property more attractive to tenants.”

Activity by town

Overall at the half-year, there are many more centres getting worse than are getting better. Of the 63 large centres analysed, ten centres showed an improvement over the six months to the half-year, while only eight of these showed a consistent improvement over the year.

These improvers include Bath, Guildford, Central London, Cardiff and Liverpool. While it is way too early to describe these centres as “coming out of recession”, clearly their retail markets are getting better. As far as the medium-sized centres are concerned, a similar picture emerges. Of the 400 centres analysed, 73 improved over the last six months – 18 per cent of the total, but only eight per cent had lower vacancy rates year on year. Amongst these 73 centres, 25 have improved consistently over the past year. With one exception – Grantham – these are all in the southern half of the country and include Home Counties stalwarts like Henley and Romsey, London centres such as Clapham and Putney, and Welsh centres such as Swansea and Pontypridd.

This reinforces the picture that, with few exceptions, such improvements as are being seen in retail markets are being led by London and the wider South East, with some local markets getting better in, for example, Bristol or South Wales. Many large and medium-sized centres in the Midlands and North are yet to see a material improvement in vacancy. Given the importance of public sector employment in these areas, it is hard to avoid the conclusion that, in the face of a shrinking State, they are going to struggle to fill their High Streets for some time.

Sectors

The latest official data on sales volumes shows large retailers doing significantly better than convenience stores, so it’s ironic that it is the convenience sector taking the lead on openings of new stores.

Iceland will continue to expand with plans to open up to 30 more stores. The company enjoyed double digit growth in sales after opening 74 outlets in the year to end-March – 51 on Woolworth sites.

Asda’s ongoing purchase of 193 Netto stores will expand its smaller store formats. Currently, the deal is under scrutiny by the Office of Fair Trading, but the plan is to convert as many of Netto’s stores as possible to the small format.

2010 has seen high profile closures. GAME is reducing its stores from 677 to 550 by the end of 2013. This follows the earlier closure of a number of stores, along with 25 Debenhams concessions. Not quite game over, but a poor result.

Mark Bowles, Property Director, HMV Group said, “The continuing trend of increasing vacancy rates is a cause for considerable concern and will have a significant effect on the vitality of town centres across the UK.

While some retailers consolidate their operations to a smaller number of larger stores which are more cost effective to run, the majority of high street retailers are not in the position to do this.

There are positive signs that some regions are bucking the trend, but as retailers now face an impending increase in VAT and cuts to the public sector, the outlook for many towns and cities across the country will remain challenging to say the least.”

Summary

The positive sales volume figures exceeded expectations in the retail markets, giving succour to the view that the recession is well and truly over. However, much as one might wish otherwise, that optimism is not born out on the ground. This data shows vacancy increasing in a majority of centres and, more worryingly, particularly in those centres where the budget and job cuts proposed for the Public Sector will begin to bite. Combined with the increase in VAT in January, this will likely be a double blow for the big retail centres in the North and Midlands particularly.

So far this year we have avoided the big retail casualties such as Woolworth and First Quench, but it is clear that some continue to struggle - often in the face of increasing online sales. It is interesting to note that the GAME closures are in reaction to strong online competition and retailers such as Confetti plan to move online entirely.

Notwithstanding an overall gloomy prognosis for the retail sector, there are some shafts of light. In the South, vacancy rates, while significantly above those seen at the peak of the market, are less problematic with centres such as Bath, Guildford and Henley on Thames all continuing to improve. Central London continues to be strong and Wales too has seen falling vacancy in Cardiff and Swansea.

The big convenience retailers like Iceland and Asda continue to make opportunities out of the weak market and value retailers like Poundland are also making hay.

Meanwhile, Waitrose continues its elegant march across the UK with new stores opening in Storrington, Anglesey, Ashbourne, Melksham, Meanwood (Leeds) and East Cowes on the Isle Of Wight, to name but a few.

The key to a healthy market will be in the maintenance of this good news throughout the whole of 2010 and 2011.

Matthew Hopkinson, Business Development Director at The Local Data Company commented, “Our latest report shows the reality of a slowed but still rising increase in shop vacancy rates across the country. Whilst some centres, particularly Central London and the South East are showing stabilisation or improvement, others in the provinces are not.

“The impact of the VAT increase, public sector cuts and fierce competition within the ‘multi channel’ retail environment make it increasingly hard for shops on our high streets. In light of these new and fast growing ‘off the high street’ channels, will we ever need these vacant shops again? For those that survive, service, quality of offer and price need to be their values in order to ensure they can thrive.”